Assistance Doing More Harm Than Good?The Case of Food Security in PRC By Wing Lam

Food security has once again made news headlines as one of the major concerns of the world at large. For a long time, food insecurity and hunger were perceived as threats exclusive to the poor, economically backward and populous countries. But, the food price spiral since the beginning of year 2008 appears to refute such proposition and has made one believe that food insecurity is no longer ‘their’ problem, but also for those who live in rich, well-fed countries in the North.

The prices of rice, for instance, nearly tripled in the first four months of 2008. [1] Price of wheat and other staple crops also rose in similar fashion. On February 13, the Food and Agriculture Organization (FAO) announced that 36 countries were in crisis as a result of higher food prices and would require external assistance. Of those, 21 were in hunger-ravaged Africa. World governments gathered in Rome last June to show their sincere commitment to tackle the world food crisis. The food problem was expected to be a dominant topic in the G8 meeting in Japan in early July. A rare phenomenon in recent decades, everyone feels the heat and vows to do something about it.

There seems to be no general consensus over whom and what to blame for the crisis: higher energy and fertilizer costs, greater global demand, droughts, the loss of rice farmlands to biofuel plantations, and price speculation of staple crops are amongst the major contributing factors. Climate change also plays a part in fuelling the problem. The ADB says that while stocks of rice are the lowest they have been in a decade, the real problem is one of price: the ability of poor people to buy food. [2] Higher disposable incomes in rapidly developing Asian economies and a shift to greater meat-based protein consumption have led to greater demand for food and feed grains in the region. [3] This seems to paradoxically suggest that development has backfired on itself for creating its own problem. Is that so? The reasons contributing to the current food crisis go beyond the simple, textbook economic explanations; they are consequences of industry-biased economic structural changes; poor public investment in agriculture; dominance of a few transnational agribusiness firms in the global food supply chain; and a distorted global agricultural trade system starting to bite.

China faces challenges in tackling its own food crisisChina, alongside India, has been singled out for playing a role in pushing up global food and oil prices for their rapid economic growth and increasingly affluent population. The accusation seems not entirely fair as the two countries have a reasonably high level of self-reliance in food. For instance, China produces 95% of the food it consumes, and food trade has been administered and closely monitored. The extent to which China and India will buy out world food is not factually convincing, at least not for now or in the very near future.

Nonetheless, China already experienced its own food crisis prior to the bitterness of the food price hike around the globe. In mid-2007, the Chinese public already felt the pressure of increasing prices, especially for grain, pork and diary products. Food prices rose 12.3% in 2007 compared with the same period in 2006, which contributed to an 85.4 percent rise in the Consumer Price Index (CPI) rise. [4] Soaring prices continued in 2008 after a short-lived sign of slowing down. Government statistics show that in the January-February period, prices of soya beans rose 41.6%, corn, 14.4% and wheat, 8.8%. Since then, food inflation has been standing at double figure.

Struggling to keep the lid on inflated food prices, with shortages and ongoing price spiral beginning to hammer public confidence in food availability, a series of measures to curb prices has been introduced. The government appears to make every effort to contain the problem domestically.

On the supply side, the export of a number of staple foods has been banned, and temporary quotas on the export of grain including wheat, corn and rice flour have been set since late 2007. In early 2008, China abolished tax rebates for grain exports and levied export tax on 57 types of grain and processed grain products. [5] Effectively, grain exports dropped by 72.8% in the first quarter of 2008, as compared with the same period in 2007. [6] To strengthen domestic food availability, the Chinese government increased the minimum purchase of price for grain twice in the first three months of 2008 to encourage grain production. [7] The government also promised more public investment in agriculture and more support (including direct subsidies) to farmers.

On the demand side, the government has kept food prices low to assure the public, especially urban residents, and for them not to be dramatically affected by the rising trend. Large producers and wholesalers need approval before increasing prices on grains, edible oil, meat products, eggs and milk. The government has used its reserve stockpile to increase the supply of grain and to further stabilize grain price. China has increased the monthly minimum living allowance by 15 yuan (US$2.15) per person in urban areas and by 10 yuan (US$1.43) for rural residents in 2008 to ensure that the low-income group can cope with rising food prices. In response, the Beijing government announced it would raise the minimum salary by 10% and increase cash payouts for families living below the poverty line effective on July 1. [8] A similar raise has been gradually rolled out in other Chinese provinces. The Chinese government’s responses to the food crisis have earned international praise, although World Bank and ADB expressed discontent over China’s export ban and price control of grain products. [9] The effectiveness of these measures remains to be examined as food price pressures is still rampant in the country. In June, the government reported that CPI for food rose by 19.9%; of which, meat products increased by an alarming rate of 37.8% and grain by 8.96% in May. [10]

The contributing factors of the food price hike in China are multi-faceted. While many put the blame on China’s overheating economy and excess liquidity, [11] other factors include the loss of farmland and human resources to industrial development; rampant pollution of water and soil erosion resulting from deforestation and desertification; and increasing cost of fertilizers and agricultural input, which effectively force farmers out of agriculture. The government hopes economic incentives work best to encourage food production. It will, but not without an enabling environment for farmers to do their job and tap market opportunities. Recent government efforts in stabilizing food price and boosting supply are welcomed, but may not be sustainable if there is no political will in looking into the root causes of the food problem and addressing them through public policy. Particularly, questions should be asked why agriculture is still shrinking in spite of increasing public investment in agriculture year after year.

In the beginning of 2008, the State Council approved 95.063 billion yuan in subsidies for farmers. Those who grew wheat and oilseeds each received 1 billion yuan. [12] But according to a farmer living in Babao county of Liaoning Province and who is growing 2.7 hectares of paddies and 0.7 hectares of corn and making an annual net income of 20,000 yuan (US$2857), the subsidy for individuals is limited as the agricultural costs have increased by nearly 50 percent. [13]

Access to Food has the same importance as boosting food supply

Food security is not only about how much food is available, but more importantly how one accesses the available food for a healthy life. Boosting the supply of food is not very meaningful if they fall only in the hands of a few, leaving millions on an empty stomach. The current food crisis has shown the ugly truth of social and economic inequality that makes the poor more and more vulnerable to risk and crisis. When price has gradually become a key, if not the only, medium to access food, how the poor could secure minimum access to food at an affordable price is of great importance.

Compared with other countries, the Chinese is likely to survive the recent food price hike, thanks to the government’s heavy-handed approach in curbing price and grain harvests in the past four years. How long is the grain stock going to last? How effective are the administrative orders in curbing prices and making them artificially low in the medium- and long-term? There are already reports of food stuff being smuggled from China to its neighboring countries. [14]

Emphasis should be placed not only on boosting food supply but also on strengthening sustainable food access of the vulnerable groups in the short-, medium-, and long-term. It takes time to increase food supply. The increase in wage salary always lags behind price inflation. Who will be hurt most before food supplies fill the market and bring down market price for food? The 20 million rural migrant workers who move out of agriculture to make a living in cities have noticeably suffered the most. In an interview, Li Guangda, a former farmer from Hebei Province and now a migrant worker in a construction site in Beijing’s central business district said, “my monthly payment of 2000 yuan (US$286) can hardly make ends meet for my family of six. The money buys only half the quantity of grain it could purchase four years ago.” [15] Like millions of other migrant workers eking out a living in cities, Li is not entitled to any social welfare benefit. Thus, he would not benefit from the increased cash payout under the minimum living allowance scheme. Food price hike effectively increases their food budget, which in turn impacts on their overall well-being, to include their health care and children’s access to education.

In China, the NGOs are hardpressed to challenge the government’s role in dealing with the food problem given the political context and limited space for NGOs to play a meaningful role in advocating policy. Having said that, NGOs in China can still play a part to help promote and protect the vulnerable groups’ access to food. Monitoring policy implementation and documenting cases of how the poor and marginalized groups are affected in food access can be helpful. Constructive engagement with government to draw their genuine attention to the voices of the poor and marginalized and considering these while crafting food security policy is also important. Grassroot NGOs who provide direct service to the poor and marginalized groups should be sensitive to the impacts of the recent food crisis to their service group, and should proactively assist them in protecting their food access through program efforts.

IFIs can and should play a constructive role At the international level, international organizations and International Financial Institutions (IFIs) should take the lead in advocating governments around the world, especially from the developed countries, to look into the root causes of the food crisis. Not many countries are like China or India which can fend off international pressures when formulating food security policy that they deem best for their people. [16] Many hunger-prone countries neither have the fiscal nor the political capacity to promote available domestic food and protect their people’s food access. This is why IFIs can and should do their part.

Development assistance of World Bank and ADB to developing countries has noticeably shifted from agricultural and rural development to private sector development. [17] According to ADB’s 2007 Annual Report, ADB’s loans and grants on Agriculture and Natural Resources in 2006 were sharply reduced from US$800.2 million (or 11% of the total loans) and US$130.6 million (or 24% of the total grants) respectively, to only US$146.3 million (or 1% of the total loans) and US$22.8 million (or 3% of the total grants) in 2007. [18] In line with the theme on growth, the projects falling under the category of agriculture appear to be heavily focused on agricultural commercialization and marketing. This may not be surprising as the Banks have long encouraged countries to dismantle government-run grain buffer stock, have opposed countries to setup marketing boards, agricultural research and feed banks, which could have played a vital role in alleviating current food shortages, in the name of deregulation and liberalisation. Farmers are encouraged to shift to export crops which contributed to the scarcity of basic food stuff for domestic consumption. The Banks oversee a systematic lack of investment in necessary infrastructures and promote the privatization of water and the dismantling of tariffs which generated revenue for support programs; thus leading to declining incomes for rural producers. There may be some truth in that the market holds wisdom when allocating resources, but it cannot be trusted with the fullest power to run a freehand. Market tends to discriminate against the poor and those who lack the capability to catch up with the ‘market’ game.

The current food crisis offers a good lesson to learn, yet once again, at the expense of the poor. Genuine actions are required, not lip promises. It is now time for countries of both developed and developing countries to reflect on not only national food security policy but also on a sustainable global food security strategy. The World Bank’s 10-point plan to boost lending in agriculture and ADB’s promise of massive lending in budget supports to tackle food price hike are welcomed, but these should be considered as a short-term rescue package. A well thought-through review of the Bank’s lending focus is urgently needed to fulfill the Banks’ role in poverty alleviation, particularly in ensuring the poor and vulnerable groups’ food security at the forefront.

Wing Lam is a development policy researcher and consultant for international non-government organizations based in Hong Kong and People’s Republic of China. Her research interests are on trade and food security issues in China. She was a research consultant of ActionAid International's China country office between 2007-2008.